DEBAUCHED BISHOPS AND OPTIMISM

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DICK TURPIN
MANAGING DIRECTOR, ARTEMIS

CHARITABLE. That’s the only word for investors’ sentiment these days, as markets move on up. It all reminds me of the attitude of the historian Gregory of Tours towards Droctigisilus, the debauched Bishop of Soissons around 545 AD: “Although he was a voracious eater, and drank immoderately, no one ever accused him of adultery.”

In like manner, investors seem prepared to forgive government balance sheets that should drive anyone to drink. The debts – and deficits – are frightening. But instead, investors are focusing on growing signs of spring: economic recovery, and excellent corporate results.

So it looks as if the rise of equities will continue. What about bonds, and UK gilts in particular? Gloom and doom is the general consensus. Sterling, say most analysts, will continue to slide; and a hung parliament will make bad matters worse – simply because markets will conclude that there is no political will to address the UK’s unsustainable budget deficit. When they’ve sorted out Greece, the IMF’s next stop? (Great) Britain.

We’re not so sure. Though the result of the election is important to what happens in the gilt market, we think the chances are slim of the result causing a major dislocation in the gilt market. If a good and sensible result is the outcome, the gilt market will respond very positively, and confound the pessimists.

It’s easy to exaggerate the impact of elections on markets. Of the past 10 general elections, only two have seen double digit moves in the All-Share. The surprising Tory win in 1992 saw the index rise by 14 per cent – although that gain was down to only 3 per cent three months later. And in February 1974, when Labour formed a minority government, the index fell by 22 per cent in a month. But the other eight elections have excited the stock market about as much as coastal erosion.

And so I end where I began, with Droctigisilus as an apt analogy for markets. As empires waxed and waned, this jovial bishop just got on with the basics. That’s the thing.